You can exclude up to $5,250 of qualified educational assistance payments
provided by your employer, for undergraduate or graduate level studies. In
order to qualify, the program must meet the following tests:
Rules for qualifying for
educational assistance do not favor highly compensated employees.
Not more than 5% of the
program’s benefits during the year are for shareholders or owners.
The program does not allow
employees to choose cash or other taxable benefits instead of educational
The employer gives notice of
the program to all eligible employees.
The program can cover current employees, former employees if the benefit is
based on their employment, leased employees who have performed substantially
full-time services for at least one year, yourself (if you are a sole
proprietor), and partners, in the case of a partnership.
Highly compensated employees, for purposes of the educational assistance
program tests, are defined the same as for dependent care benefits programs.
If your employer sells you property or services at a discount, you may be
able to exclude the discount from your income. The discounts must be on
property or services your employer sells to customers in the ordinary course of
the line of business.
Excludible discounts apply to current employees, former employees, widows
and widowers of former employees, leased employees, and partners who perform
services for a partnership.
There are limits on the amount of discounts that can be excluded from
Discounts on services cannot
be more than 20% of the amount charged to regular customers.
Discounts on merchandise or
property cannot be more than the business’s gross profit percentage on the
price normally charged to regular customers.
Discounts are not excludible if they are granted only to highly compensated
employees, and not to all employees or to a group of employees defined
according to a reasonable classification that does not favor highly compensated
employees. Highly compensated employees, for purposes of the employee discount,
are defined the same as for the educational assistance program tests, and the
dependent care benefits programs.